Editor Charles H. Smith's Note: A letter to the Editor printed on page 6 of the 9 March 1894
issue of the Daily Chronicle (London). To link directly to this page, connect with:
http://people.wku.edu/charles.smith/wallace/S493A.htm

The Editor of the Daily Chronicle.

Sir,--One source of difficulty and unfairness in most schemes of progressive increase of
taxation arises from the progression being made by a limited number of steps, so that a small
change in the taxable amount leads to a considerable increase in the rate of taxation, as seen in
the case of certain stamps and licenses. What is required is a tax which shall increase steadily
with the taxable amount, so that there shall be no steps or jumps, and, therefore, no inducement
to falsify returns in order to bring the amount within the lower rate of charge. Many years ago I
worked out a method of doing this automatically, which it may be useful to make known, now
that such progressive taxation is demanded by all advanced reformers.

The proposal is--first, to fix upon an amount as the unit of taxation in each case, this unit to
be charged one per cent. The percentage on all higher amounts is to be determined by taking the
square root of the number of units. An example will make the working of the system clear. In the
case of the death-duties we will suppose the unit to be £1,000, on which the duty will be one per
cent. It will then increase gradually to two per cent. on £4,000, three per cent. on £9,000, till it
reaches ten per cent. on £100,000, and 31 1-3 per cent. on £1,000,000. On all intermediate
amounts the percentage will be fractional, but easily calculated on the same principle, so that
each increase, whether of £1,000, or of £100 or less, will bear its proportionately increased rate
of taxation. A valuable incidental result would be, that on very large properties the tax would
increase more rapidly, so that when the amount exceeded £5,000,000 the sum receivable by the
heirs would be at a maximum, and would be about £1,500,000, while if any man died worth
£10,000,000 the tax would be 100 per cent. and would thus absorb the whole. The effect would
be that very rich men would be more inclined to utilise their wealth for public purposes when
alive, since it would not benefit their heirs to leave more than a few millions at their death.

A great advantage of this system is its flexibility. The principle of thus progressively
increasing any form of tax being decided on, the amount of the tax could be increased or
diminished by diminishing or increasing the unit. A lower unit will make the tax increase more
rapidly on higher amounts, and will also fix the maximum of profitable wealth lower. Thus, if in
the case of a progressive income tax the unit is only £100, then £10,000 will pay ten per cent.,
and the maximum net income, of about £15,000, will result from a gross income of £50,000. This
result might be usefully reached by periodical decrements of the unit of taxation.

For the purposes of such a tax or death duty, tables would, of course, be constructed showing
the approximate amount of tax on varying incomes. The lowest amount of income or property
liable to taxation might be higher or lower than the unit, but in all cases that amount should be
deducted from higher incomes for purposes of the tax.

A considerable additional revenue might be derived from the estates of intestates leaving no
direct descendants or close relations. Either a much heavier duty might be charged in such cases,
or, as many think, the whole might equitably revert to the State. Certainly all property for which
no legal heirs can be found should, after a period of twenty years, be taken for the benefit of the
community.

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